Profits at Airlines to Fall 10%, Says IATA
By John Hughes, Shanghai Daily | Apr. 02, 2008
Airline profits worldwide will be 10 percent lower than the industry's previous 2008 forecast as fuel costs rise and the United States economy slows, a trade group said on April 1.
Carriers will earn a collective net profit of US$4.5 billion, down from the US$5 billion predicted in December, the International Air Transport Association said. The new outlook marks the third reduction in seven months by the Geneva-based group.
"The change in guidance doesn't surprise me, given that IATA was basing its outlook on oil at US$73 a barrel," Penny Butcher, an analyst with Morgan Stanley in London, told Bloomberg News. "Europeans still have good hedging for 12 months but if that US$100 a barrel is still around in 12 months, it won't last forever. And the American carriers barely have any hedging."
Jet fuel represents 28 percent of industry operating costs, according to IATA, up from 13 percent five years ago. Oil prices have risen 53 percent in 12 months, with crude for May delivery at US$100.91 a barrel on the New York Mercantile Exchange on April 1.
The rising price of fuel has led airlines to raise fares, damping demand. Carriers are also facing more competition on lucrative trans-Atlantic routes as a new US-European Union treaty has expanded flying opportunities.
"The headwinds facing airlines look too severe to be overcome by squeezing out further efficiency gains," said IATA, which represents 243 carriers. "We expect net profits to fall."
IATA cut its 2008 global profit estimate in December to US$5 billion from US$7.8 billion, after reducing the forecast from US$9.6 billion in September. The latest cut comes after carriers posted US$5.6 billion in 2007 profit.
"US consumer confidence slumped in March to levels consistent with a serious recession," IATA said.